Defense Acquisitions. DOD's Practices and Processes for Multiyear Procurement Should Be Improved

DODs process for justifying multiyear programs leaves questions about the appropriateness of some approved MYPs and the cost effectiveness of investments made for the risks assumed, as indicated by recent submissions for the F-22A and V-22. Although the law has clear requirements for stable, low risk programs with realistic cost and savings estimates, lack of guidance and a rigorous process is not achieving this. It is difficult to precisely determine the impact of multiyear contracting on procurement costs. GAO studies of three recent MYPs identified unit cost growth ranging from 10 to 30 percent compared to original estimates, due to changes in labor and material costs, requirements and funding, and other factors. In some cases, actual MYP costs were higher than estimates for annual contracts. Although annual contracts also have unit cost growth, it is arguably more problematic for MYPs because of the up-front investments and the governments exposure to risk over multiple years. MYP savings were on average higher before changes in law called for substantial savings rather than a specific quantitative standard. Other factors lower quantities of modern systems procured, stricter cancellation liability allowances, and contraction in the defense industrial base may have also impacted savings by lessening opportunities for more efficient purchases, DOD spends 10 billion annually on multiyear procurement MYP contracts for weapons systems. MYPs may save money through more efficient relationships with suppliers and producers, but may also suffer losses if cancelled and can limit future budget flexibility. Recently, Congress has been concerned about DODs management of the process and savings realized by MYPs. GAO was asked to evaluate DODs review process for MYP candidates examine MYP program outcomes identify the impact of changes to MYP savings threshold guidance, and determine how much DOD validates MYP performance.